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Question:

A farmer anticipates that a major piece of machinery will require replacement in 6 years at a cost of $275 000?

He plans to invest $20 000 every six months in an investment account with a view to replacing machinery. What interest rate will he need to meet his goal?(either use present formula A= P *(1-(1+i)^(-n))/ i or future formulaS = P *( (1+i)^(n) - 1)/ i, im not sure wich formula to use)PLEASE SHOW ALL WORKING OUTplease help me ITS URGENT

Answer:

use S = P((1+i)^n-1)/i 275000 = 20000((1+i)^12 -1)/i ((1+i)^12-1)/i = 275000/20000 = 13.75 this can't be solved analytically as it is a polynomial of degree 12 feeding into wolfram alpha, i ≈ 0.0244147= 2.4415% now remember that this is the rate adjusted for periodicity, so interest rate needed = 4.883% <-------- check: --------- 20,000((1+0.04883/2)^12-1) /(0.04883/2) = $275000.48
250000=20000 *( (1+i)^(n) - 1)/ i i=4.88%

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